On the flip side, an agent is motivated to close the deal not necessarily get the highest price. If the agent gets 10% cut, they get $750 or $1050. Is $300 worth potentially souring the deal?
That's a common complaint about seller's agents in real estate.
Unsure what the solution is. A seller can, of course, say that they refuse to sell for under $X, though that could potentially still be leaving money on the table if the buyer might have been willing to offer $X+Y.
I think one better way to handle commissions for home sales is to have no commission for the first $x of the price. X being a price that it would be very easy to sell at, a price low enough that the property would just immediately sell without much effort because it is too low. Then apply a much larger commission percentage to the amount it sells for above that "easy sale" price. That way, the seller and the agent actually have more closely aligned incentives and thus motivation for the agent to try and get that last $5k, or whatever.
To explain the issue in detail for others that don’t understand the dynamics:
A flat percentage is the standard where I live. Selling agents are only incentivised to get as many sales through as quickly as possible, and the agent will deceive and cheat to achieve that goal. Selling 20 homes at 5% discount is almost double the earnings (commissions) for the agent than selling 10 homes.
Agents make wayyyy more by selling more houses quickly than they ever could by spending more time selling each home to get a few percent more.
Yet the person selling the home really really cares about that few percent because their home is often highly leveraged: if they have paid 20% of principal and get 1% more from the sale, that is actually 5% extra return (which can easily be equivalent to avoiding many extra years of work before a home is paid off).
No, I have not ran this by an agent, but I likely will in the future.
I especially think that buying agents have the most messed up commission structure out there.
Not only is their real incentive just to make as many deals as possible, just like a seller's agent, but they actually get a bump in commission the more you overpay for the property.
> which can easily be equivalent to avoiding many extra years of work before a home is paid off
Yes it is an exaggeration at 1%, but not such an exaggeration when you consider that 3% is a realistic amount extra that a real estate agent can get if motivated. https://financialpost.com/real-estate/the-realtor-client-dil... - “a real-estate agent keeps her own home on the market an average of ten days longer and sells it for an extra 3-plus per cent, or $10,000 on a $300,000 house.”
When I wrote it I was specifically thinking of low paid friends who missed out on about 5% when selling their home due to poor advice from the agent during a hot market (my friends also failed to think straight because they don’t work in negotiation jobs, and they struggle with emotions involved with the amount involved). The reduction in principal will translate to requiring a total of ~10% extra over the lifetime of the new mortgage (extra interest = ~5%). I imagined how that would translate to extra years of work for them when they should be retiring. I also thought that the story of my friends happens to many, because many people are not used to negotiating sales for $x00,000 and have little financial experience to understand the impacts of their decisions.
A reserve price just sets a target for the agent and they negotiate to that target. I'm sure there are some commission based structures out there that address this inbalance.
